It is an interesting time to listen to investors talk about what they are doing and not doing in the volatile stock market. I have been doing employee meetings for our 401(k) clients to provide information to the employees and answer their questions.  Recently, several people have stated, with some amount of pride, they haven’t stopped investing in their 401(k) plans. RIGHT!  But, then they say that they changed their investment election so that the new contributions are going to cash or guaranteed accounts instead of equities. WRONG! One of the biggest advantages of deferring money from each paycheck is dollar cost averaging. Investing the same amount of money for each pay period automatically results in buying fewer shares when the prices are high and more shares when the prices are low. Currently stock prices are lower than they have been in years. Thus the same amount invested from each periodic paycheck buys more shares than the same amount invested over the past several years. When prices increase the shares purchased at the lowest price will make the largest profit. The following options illustrate this point assuming we are investing $200 per month for 47 months.
A. Share prices start at $20 per share and increase every month by just over 21 cents every month to $30 per share 47 months later.
B. Share prices start at $20 per share and decline by $1 every month until they reach $2 per share. Then they increase by $1 every month until they climb to $30 per share.
Psychologically and emotionally option A feels better because the price never goes down. Yet option B, if you are emotionally and financially able to keep up the contributions, provides a substantially better return. The $200 per month in option A buys just over 381 shares worth $30 per share in the end for an approximate value of $11,440. The $200 per month in option B buys over 1,018 shares worth $30 per share in the end for an approximate value of $30,556.
Don’t make emotional decisions when it comes to your investment allocations. Being half right can result in a very expensive wrong decision.

In dollar cost averaging, the following must be made clear:
•         (a) The investor will incur a loss under such a plan if he liquidates his account when the market value of his accumulated shares is less than his cost.
•         (b) He is investing in securities subject to market fluctuations, and the method involves continuous investment in such shares at regular intervals regardless of price levels.
•         (c) He must consider his financial ability to continue the plan through periods of low prices.
•         (d) Such investment plans do not assure a profit or protect against loss in declining markets. See FINRA Conduct Rule 2210(d)(2)(1).

• Stop Drop and Roll
• How Much Does Free Cost?
• Do Your Home work first!
• The Save $8 to Spend $10 Coupon
• Fox Guarding the Hen House